Unum 2009 Annual Report Download - page 23

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Unum 2009 Annual Report
Our Unum UK segment reported a decrease in segment operating income of 7.3 percent for 2009, as measured in Unum UK’s local
currency, relative to last year. The decrease was driven primarily by an 8.3 percent decline in premium income due to a smaller in-force block
of group disability business resulting from lower sales and persistency during 2008 and 2007, primarily as a result of the competitive U.K.
market. Similar to Unum US, premium income for Unum UK was also negatively impacted during 2009 by lower premium growth from existing
customers. The benefit ratio for Unum UK was 54.5 percent in 2009 compared to 57.5 percent in the prior year, with declining disability claim
incidence and stable claim recoveries for group disability. Overall sales in Unum UK increased 42.9 percent in 2009 compared to the prior year,
aided by the exit of another large insurance provider from the U.K. group risk market. Persistency generally improved over the levels of 2008.
New initiatives in 2009 included the relaunch of our group life product and the development of new products intended to further expand the
group market in the U.K.
Our Colonial Life segment reported an increase in segment operating income of 4.8 percent in 2009 compared to last year. Premium
income increased 3.9 percent in 2009 despite the difficult environment. Risk results were generally in line with our expectations, with a
benefit ratio of 47.3 percent in 2009 compared to 47.5 percent in 2008. Colonial Life’s sales in 2009 increased 1.1 percent relative to last year,
with a 7.2 percent growth in new account sales and a 2.3 percent decline in existing account sales. The largest sales growth by market segment
was in the public sector, with growth of 11.8 percent. The number of new accounts and new contracts both increased relative to the prior
year, while the average new case size declined. New initiatives for 2009 included continued implementation of a new enrollment system
and platform and investments in growing and expanding the sales force with particular focus on recruiting, training, and sales incentives.
Our investment strategy continues to serve as an important component of our overall business performance. We are focused on both
the quality of our investment portfolio and on investing new money in investments appropriate for our liabilities. The weighted average credit
rating of our portfolio was A3 as of the end of 2009. The net unrealized gain on our fixed maturity securities was $2.0 billion at the end of
2009, compared to a loss of $2.3 billion at year end 2008. Our net investment income in 2009 was 1.8 percent below the level of the prior
year, due primarily to the weaker pound to dollar exchange rate, fewer bond call premiums and consent fees, lower income on bonds in
Unum UK for which interest income is linked to an inflation index, and lower interest rates on floating rate assets. The impact on operating
results from the lower net investment income on floating rate assets and the inflation index-linked investments was partially offset by lower
debt interest expense and benefits and reserves. Although our 2009 results include net realized investment losses on fixed maturity securities
that we either sold or considered other-than-temporarily impaired, we believe our investment portfolio is well positioned. We have low levels
of below-investment-grade securities, no exposure to subprime mortgages, “Alt-A” loans, or collateralized debt obligations in our asset-backed
or mortgage-backed securities portfolios, and minimal exposure to collateralized debt obligations within our public bond portfolio.
We believe our capital and financial position are very strong. At the end of 2009, the risk-based capital ratio for our traditional U.S.
insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 382 percent,
compared to 332 percent at the end of 2008. Our leverage ratio, when calculated excluding the non-recourse debt and associated capital of
Tailwind Holdings, LLC (Tailwind Holdings) and Northwind Holdings, LLC (Northwind Holdings), was 20.5 percent at December 31, 2009
compared to 21.5 percent at December 31, 2008. Our leverage ratio, when calculated using consolidated debt to total consolidated capital,
was 24.8 percent at December 31, 2009 compared to 26.6 percent at December 31, 2008. The cash and marketable securities at our holding
companies equaled approximately $915 million at the end of 2009 compared to $526 million at the end of 2008.
Further discussion is included in “Segment Results,” “Investments,” and “Liquidity and Capital Resources” contained herein.